The Bank of Jamaica (BoJ) has indicated that most of the currency issued during December 2011 will be redeemed during January 2012.
The seasonal spike of money in circulation in December reflected the heightened consumer demand for cash to satisfy Christmas shopping.
Data from the Central Bank indicate that for December 2011, there was a net increase of $10.4 billion in the currency stock. The stock of currency on December 30 was $62.6 billion, representing an increase of 10.5 per cent, relative to a year earlier.
According to the BoJ, over the last five years, net currency redemption in January averaged 77.7 per cent of currency issued in the preceding month.
Currency in circulation can be thought of as “cash in hand”, meaning that it is used to buy goods and services. Central banks pay keen attention to the amount of physical currency in circulation because it is present in the “most liquid asset class”.
Economists generally agree that money supply is an important instrument for controlling inflation. They posit that the more money that comes out of circulation and put into longer-term investments, the less money is available to fund shorter-term consumption. In addition, excess money in circulation can induce inflation.